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Who here trades Futures?

  • #1
  • First Post: Jun 6, 2007 9:14pm Jun 6, 2007 9:14pm
I was seriously considering trading futures rather than forex for a while, but was not sure if I am cut out for that market..

I wanted to trade a longer term system, with a trend following strategy, and diversifying funds across three non-correlating markets..

Here is my problem.. I only have about 7 or 8 thousand to invest, so the question is, with only trading one contract am I still undercapitalized? What is a recommended account min?

Also, I am unaware of some of the unique characteristics of the futures market. I have been studying the major differences between futures and forex, but Im sure there are many minute variations that will end up screwing me.. If anyone knows a way I can learn the basics of the futures market I would appreciate any help.

Thank you!
Dave
  • #2
  • Edited 10:35pm Jun 6, 2007 10:29pm | Edited 10:35pm
Hi Dave,
I am going across to forex futures. Forex brokers are not regulated, futures brokers are.
Below is a quote from Vegas:
The Chicago Mercantile Exchange [CME] is where currency futures and the e-mini S&P 500 futures contracts are traded. While they still maintain traditional pit trading in these contracts, the volume traded electronically on their GLOBEX trading platform far outpaces what happens in the pits. It is not my intention to turn this file into the Basics of Futures Trading 101. If you are a little fuzzy on the basic principles of futures contracts, how they are priced or their function, then I suggest you spend some time at the CME website http://www.cme.com
There are a couple things worth mentioning about the GLOBEX futures contracts. The first is that all the currency pairs and the e-mini S&P contract trade on the March, June, September, December cycle. The second thing to remember is that 1 contract [the minimum] equals the following trade size and value:
125,000 Euro/USD [1 pip = $12.50],
62,500 GBP/USD [1 pip = $6.25],
125,000 CHF/USD [1 pip = $12.50],
12,500,000 JPY/USD [1 pip = $12.50],
100,000 AUD/USD [1 pip = $10.00],
100,000 CAD/USD [1 pip = $10.00],
50 Times Cash S&P 500 Index [1 tick = 0.25 Index Points = $12.50].
The contracts for Swiss [CHF], Yen [JPY] and the Loony [CAD] are quoted, and trade, inverted to the cash market. The main reason for this is so the rollover interest charges can be added to the price of the futures contract at delivery. This allows for the seamless trading of the contract from day-to-day without having to charge for interest in another currency.

Forex brokers you lose money on their spreads, even at normal times you have to overcome 4-5 or more pips. At News they widen to whatever they feel like, as long as it screws you & gives to them. Also, forex brokers "stop hunt" & don't like scalpers. Oanda is a good example of a screwer who stop hunts & widens spreads.
To my knowledge, the main CME futures brokers don't stop hunt.
Futures platforms also show all the volume of bid & ask.
Futures also are 0-1 pip spread, you only pay commissions.

A word of warning, you must trade the futures at times of high liquidity, London, US open, etc, otherwise you may not get a fill. ( totally forget Asian session)

Don't even dream of trading the NFP with a forex broker, futures the exact opposite.

You may also wish to trade the e-mini's or gold, crude, whatever you desire.

I have had dealings with infinity, proactive & PFG, they are all futures brokers & all have given me excellent service, free demo's & training video's.

I am new to futures trading, however, this is what I have recently learned & would invite further comment,
Bazza
  • #3
  • Jun 7, 2007 12:44am Jun 7, 2007 12:44am
If you trade the mini-indexes you can open up 1 lot with about $400-$700, depending on your broker. With $8k you should be safe day trading 5 lots. Longer term, you need to adjust accordingly because over-night margins come into play.

Quoting superdezign
I was seriously considering trading futures rather than forex for a while, but was not sure if I am cut out for that market..

I wanted to trade a longer term system, with a trend following strategy, and diversifying funds across three non-correlating markets..

Here is my problem.. I only have about 7 or 8 thousand to invest, so the question is, with only trading one contract am I still undercapitalized? What is a recommended account min?

Also, I am unaware of some of the unique characteristics of the futures market. I have been studying the major differences between futures and forex, but Im sure there are many minute variations that will end up screwing me.. If anyone knows a way I can learn the basics of the futures market I would appreciate any help.

Thank you!
Dave
  • #4
  • Jun 7, 2007 3:06am Jun 7, 2007 3:06am
Hi Dave,

I have several colleagues who trade the S & P 500 e-mini, you can open an account with $500, however, indexes are good as the index itself is the filter.
Just use your forex technical knowledge & you will cream it getting 2 ticks. 2 ticks * 5 contracts @ 12.50 per tick less $3.50 fees = $9 tick * 2 ticks * 5 contracts = $90. Do that 2-3 * a day & thats a nice living.
Go to finance.yahoo.com for basic charts, use a 20 EMA, slow stochastics, & also go to pfg, infinity, proactive or whatever futures broker you choose & start sailing!
Good trading, Dave,
Bazza
  • #5
  • Edited 3:32am Jun 7, 2007 3:30am | Edited 3:32am
Regulated Futures brokers DO NOT stop hunt.....players in the market will, nature of the beast. A futures broker does not take the other side....it benefits them for clients to prosper, which equals future commissions!
RJO, Rosenthal Collins Group, and Lind-Waldock....a few more to check out.
Glad to see more traders looking at the futures side.

Added bennie......segerated funds in clients name. ( check that spelling! )
Proper Prior Planning Prevents Piss Poor Performance
  • #6
  • Jun 7, 2007 4:13am Jun 7, 2007 4:13am
I checked the e-minis for a while and just couldnt apply my Forex-based Technical Analysis tool into it. I follow a trend-trading approach in forex (trendlines, Moving Averages, fibs, etc), but I found that range-bound tools work better in the eminis (pivots, horizontal S/Rs, etc).
  • #7
  • Jun 7, 2007 7:39am Jun 7, 2007 7:39am
I dabbled in futures a couple of years ago. Tried to do some scalping of S&P, but after a close to 20% drawdown, I gave up.

Everybody and their mother jumps on E-mini S&Ps when they first hear of futures trading... maybe I'm biased from my experience, but don't trade it. Some of the more seasoned e-mini traders stay away from the S&P and like to trade the Dow*, Russell 2000, 10 year and 30 year treasury notes.


* Actually listed on the CBOT, which is odd considering the other stock indexes are on the CME. But this might not matter much as there have been rumors for almost a year that the two will merge.
  • #8
  • Jun 7, 2007 8:06am Jun 7, 2007 8:06am
So looking at the general consensus here I am not undercapitalized? I looked at the overnight margins... since i am thinking about trading corn, bonds, and gold I think I should be ok. I think the highest was $800 margin..

What do you guys think about slippage? How bad can this get in the futures market?
  • #9
  • Jun 7, 2007 8:26am Jun 7, 2007 8:26am
Quoting superdezign
So looking at the general consensus here I am not undercapitalized? I looked at the overnight margins... since i am thinking about trading corn, bonds, and gold I think I should be ok. I think the highest was $800 margin..

What do you guys think about slippage? How bad can this get in the futures market?
Depends how you Trade.

If you are Sclping and have to get in and out quickly, slippage can be frustrating. Particularly in a huge Spec Market like 2 of the 3 you mentioned.

If you are Term Trading, avoid using Mkt orders.

I've never had a problem getting a Time & Sales statement from a Futures Brkr to rectify any "Slip" disputes.

"Fast Market" Brkr "Not Held".
Avoid Trading during these times until you know exactly what it is.
  • #10
  • Jun 7, 2007 8:34am Jun 7, 2007 8:34am
So If I am trendfollowing doing longer term trades, then slippage shouldnt be a problem??

and why should I avoid market orders?



Quoting Bemac
Depends how you Trade.

If you are Sclping and have to get in and out quickly, slippage can be frustrating. Particularly in a huge Spec Market like 2 of the 3 you mentioned.

If you are Term Trading, avoid using Mkt orders.

I've never had a problem getting a Time & Sales statement from a Futures Brkr to rectify any "Slip" disputes.

"Fast Market" Brkr "Not Held".
Avoid Trading during these times until you know exactly what it is.
  • #11
  • Jun 7, 2007 8:45am Jun 7, 2007 8:45am
Quoting superdezign
So looking at the general consensus here I am not undercapitalized? I looked at the overnight margins... since i am thinking about trading corn, bonds, and gold I think I should be ok. I think the highest was $800 margin..

What do you guys think about slippage? How bad can this get in the futures market?
Also, FX margins are typically $1,000-$1,500. But yeah, generally you shouldn't get into the mini futures market unless you have at least $5k (and IMO, closer to $10k).

You also might want to look at trading futures options for longer term trading. I haven't, but I heard that buying an option contract on an S&P-500 future is much, much cheaper than buying the equivalent option contract on the equities/stock market.

As far as slippage, you're going to expect it more often in the commodities (corn, gold, hog bellies, etc.) than the monetaries (stock indexes, currencies, bonds, etc.). The electronic futures market does run 24 hours, but movements overnight are erratic as about the only people who place trades overnight are foreign institutions, and they will move the market quickly with large orders in an illiquid market.

Some futures traders like to trade the European futures markets at 2-3 AM EST instead of trying to deal with the illiquid American markets. Usually they trade the DAX and LIFFE indexes. The European markets no longer have pits, as they went completely electronic many years ago. This is a bit of contention with the CBOT and NYBOT, who still use pit traders heavily.
  • #12
  • Jun 7, 2007 8:59am Jun 7, 2007 8:59am
So if i do not want to get whipped out of trades I should stick to day sessions then?? Or are the moves not that big at night?

Quoting bluebuddha
Also, FX margins are typically $1,000-$1,500. But yeah, generally you shouldn't get into the mini futures market unless you have at least $5k (and IMO, closer to $10k).

You also might want to look at trading futures options for longer term trading. I haven't, but I heard that buying an option contract on an S&P-500 future is much, much cheaper than buying the equivalent option contract on the equities/stock market.

As far as slippage, you're going to expect it more often in the commodities (corn, gold, hog bellies, etc.) than the monetaries (stock indexes, currencies, bonds, etc.). The electronic futures market does run 24 hours, but movements overnight are erratic as about the only people who place trades overnight are foreign institutions, and they will move the market quickly with large orders in an illiquid market.

Some futures traders like to trade the European futures markets at 2-3 AM EST instead of trying to deal with the illiquid American markets. Usually they trade the DAX and LIFFE indexes. The European markets no longer have pits, as they went completely electronic many years ago. This is a bit of contention with the CBOT and NYBOT, who still use pit traders heavily.
  • #13
  • Jun 7, 2007 9:12am Jun 7, 2007 9:12am
Although the leverage is not as great, futures is a lot cheaper to trade , discounting the slippage .
But in futures trading , slippage will be significant.
You also don't have to consider swap points.
On the other hand the contract has an expiry with a delivery sword over your neck.
You will also have to pay for live quotes and the order methods are slow compared to FX.
You have to constantly roll your charts into the active month, which is not always the spot month in certain contracts.
I've been looking for a method to do a carry trade ,hedged with futures,
but no real system as yet.
  • #14
  • Jun 7, 2007 9:20am Jun 7, 2007 9:20am
Quoting superdezign
So if i do not want to get whipped out of trades I should stick to day sessions then?? Or are the moves not that big at night?
As I said, the slippage is bigger in commodities. As for the monetaries, the overnight slippage is about what you would expect in the stock market indexes, or FOREX data with the Asian and European sessions blocked out... and most often, it far less than the height of a typical candle/bar on a daily chart. However, the nice thing with futures is that if you have a stop order left overnight, the price is almost always respected, whereas on the stock market, if there is a huge gap, your stop will get filled at whatever price it gaps to in the morning.

If you feel uneasy about overnight gaps and getting stops taken out overnight, you could trade futures options. This way your risk is limited to whatever you paid for the contract(s), and there is room for the market to bounce back if it goes against you for a day or two. Just remember to buy the contracts at least two months out as time decay* kills option holders within the month of expiration.


* Time decay follows an exponential curve, so while there isn't much price difference between, say a contract three months out and four months out, there is a huge difference between a contract expiring this month and one expiring next month.
  • #15
  • Jun 7, 2007 9:23am Jun 7, 2007 9:23am
What is the cost of a typical option in futures?

Quoting bluebuddha
As I said, the slippage is bigger in commodities. As for the monetaries, the overnight slippage is about what you would expect in the stock market indexes, or FOREX data with the Asian and European sessions blocked out... and most often, it far less than the height of a typical candle/bar on a daily chart. However, the nice thing with futures is that if you have a stop order left overnight, the price is almost always respected, whereas on the stock market, if there is a huge gap, your stop will get filled at whatever price it gaps to in the morning.

If you feel uneasy about overnight gaps and getting stops taken out overnight, you could trade futures options. This way your risk is limited to whatever you paid for the contract(s), and there is room for the market to bounce back if it goes against you for a day or two. Just remember to buy the contracts at least two months out as time decay* kills option holders within the month of expiration.


* Time decay follows an exponential curve, so while there isn't much price difference between, say a contract three months out and four months out, there is a huge difference between a contract expiring this month and one expiring next month.
  • #16
  • Jun 7, 2007 9:30am Jun 7, 2007 9:30am
Quoting mmont
On the other hand the contract has an expiry with a delivery sword over your neck.
You will also have to pay for live quotes and the order methods are slow compared to FX.
You have to constantly roll your charts into the active month, which is not always the spot month in certain contracts.
Yeah, I forgot about the contract expirations. What makes it really complex is that there is no agreed expiration date on the contracts (such as in equity options, where it's always the 3rd Friday): some expire in the first week, some expire in the 2nd week, some expire on a Wed., some expire on a Fri., etc.

Rather than deal with keeping up with contract schedules, I've seen most futures traders just switch to the next contract in the series on the first trading day of the expiration month (eg: I would switch from Sep07 contracts to Dec07 contracts on Sept. 3, 2007).

Charting and data are other issues as well. You have to pay for live data on most of the futures (I know CBOT eminis are an exception), and you have to switch charts when you switch contracts, leaving you with spotty data longer than three to four months ago. However, some of the more advanced data/charting services (such as TradeStation, eSignal, etc.) conveniently merge all the contract data together to give you seamless charts.
  • #17
  • Jun 7, 2007 9:33am Jun 7, 2007 9:33am
Well I will be trading with tradestation so that shouldnt be a problem then right?

As for the expiration.. doesnt the contract automatically rollover for you?

Quoting bluebuddha
Yeah, I forgot about the contract expirations. What makes it really complex is that there is no agreed expiration date on the contracts (such as in equity options, where it's always the 3rd Friday): some expire in the first week, some expire in the 2nd week, some expire on a Wed., some expire on a Fri., etc.

Rather than deal with keeping up with contract schedules, I've seen most futures traders just switch to the next contract in the series on the first trading day of the expiration month (eg: I would switch from Sep07 contracts to Dec07 contracts on Sept. 3, 2007).

Charting and data are other issues as well. You have to pay for live data on most of the futures (I know CBOT eminis are an exception), and you have to switch charts when you switch contracts, leaving you with spotty data longer than three to four months ago. However, some of the more advanced data/charting services (such as TradeStation, eSignal, etc.) conveniently merge all the contract data together to give you seamless charts.
  • #18
  • Jun 7, 2007 9:49am Jun 7, 2007 9:49am
Quoting superdezign
Well I will be trading with tradestation so that shouldnt be a problem then right?

As for the expiration.. doesnt the contract automatically rollover for you?
On the chart data, yes. For TS, you'd use @ES for the continuous data on e-mini S&P 500, for example. However, if you hold the contract on expiration day... well, expect to buy or deliver a metric ton of pork bellies.

Actually, since the futures market has gotten away from the days of farming and industry, brokers have various ways of dealing with delivery or obtaining the product in the contract. How it is dealt with depends on your broker, but usually it's a cash settlement. In any case, it is best not to get caught up in obligating on the contract, and to swap one contract for the next on the first trading day of the expiration month.
  • #19
  • Jun 7, 2007 9:54am Jun 7, 2007 9:54am
So basically what you are saying is it is smarter to just cover your postion and then enter a new position at the beginning of the next contract period? How do I know when they periods end?

Quoting bluebuddha
On the chart data, yes. For TS, you'd use @ES for the continuous data on e-mini S&P 500, for example. However, if you hold the contract on expiration day... well, expect to buy or deliver a metric ton of pork bellies.

Actually, since the futures market has gotten away from the days of farming and industry, brokers have various ways of dealing with delivery or obtaining the product in the contract. How it is dealt with depends on your broker, but usually it's a cash settlement. In any case, it is best not to get caught up in obligating on the contract, and to swap one contract for the next on the first trading day of the expiration month.
  • #20
  • Jun 7, 2007 9:54am Jun 7, 2007 9:54am
I looked into this once, but one of my problems was not being able to get into and out of positions on the same day unless you open with $25K. This is the "pattern day trading rule". Maybe this has changed by now (but I doubt it).

With Forex, you can get into and out of positions all day long! From what I vaguely remember, with equities/futures, you can only do that 3 times before they require more funds to meet the minimum required. I don't think this was a specific broker rule. Let us know what you find out if this still applies.

Frank

Quoting superdezign
Well I will be trading with tradestation so that shouldnt be a problem then right?

As for the expiration.. doesnt the contract automatically rollover for you?
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